It’s time to be bullish about oil prices and oil stocks

Оil’s recent decline should be considered as a gift. We can use it to our advantage, but we should understand all rationale for the recent price declines first.

Oil broke its neutral support level on March 8 and experienced five consecutive days of aggressive declines. In the oil space, traders are often more focused on technical support and resistance levels and the ability or the inability of oil to hold support or resistance when those levels are tested than they are the immediate fundamentals. Although I will discuss the rationale, the most important thing many investors are missing is that there were more bullish bets on oil than at any time in history shortly before oil broke support. When those support levels broke, many of those positions that respect the technicals exited the trade, and this created momentum on the downside.

Clearly, there was a degree of rationale for it. Saudi Arabia had been flexing its muscles, demanding that other countries participate in supporting oil prices. We have since learned that Saudi Arabia is actually getting the participation it wants, and the importation of oil that cost stockpiles to increase so aggressively was reversed in the latest EIA report. A surprise draw in stockpiles was realized, ultimately creating balance in what is normally a seasonal build in stockpiles for oil.

Ultimately, concerns about the Organization of the Petroleum Exporting Countries not extending their agreement to cut production have been addressed, participation appears to be on track and stockpiles of oil domestically have normalized. But U.S. shale production is still a concern.

As a result, Stock Traders Daily has placed bullish calls on oil and oil-related stocks. These calls were made on Tuesday morning and prices may have already changed from our entry levels.

MarketWatch